Presentation on theme: "Advanced Strategies to Increase Social Security Income"— Presentation transcript:
1 Advanced Strategies to Increase Social Security Income David Tolpingrud[When presenting in AR, CA, OK, TX or IL, use the phrase “Insurance Sales Presentation.”For many Americans, Social Security is the foundation of their retirement plan. However, there are few resources available to the public to help people understand how Social Security functions. As a result, it is important for us as financial professionals to understand this important and complicated retirement program.Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.
2 Optional Disclosure Slide Investments are offered through [broker dealer name], a registered broker dealer (member FINRA/SIPC). Insurance is offered through [agency name]. [Broker dealer name] and [agency name], located at [address], are not affiliated with Prudential Financial.[Optional Slide]
3 [For Allstate Financial Services only: This slide must be shown prior to the beginning of the customer presentation][Hosted/Presented by:] [PFR Name] Personal Financial Representative [Allstate Financial Services, LLC or LSA Securities (in LA & PA)]Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE (877)
4 This guide presents a general overview of certain rules related to Social Security and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time.
5 Agenda Health and Future of Social Security Social Security Maximization StrategiesSocial Security Cash FlowOver the next hour we will discuss the following items.
6 Funding The System Benefits are wage driven Employee and employer each pay6.2% for Social Security (OASDI)$113,700 cap on taxable earnings for Social Security (2013 limit)2011/2012 Reduced Employee Social Security Taxes1.45% for Medicare Hospital Insurance (HI)Affordable Care Act increaseSocial Security is funded exclusively through payroll taxes. It is considered a self-funding program. Revenue for Social Security is generated by taxing both employees and employers. For Social Security, both the employee and the employer pay 6.2%, for a total of 12.4%, of the first $113,700 of W-2 income. In addition to the Social Security portion, there is an additional 1.45% paid by both the employee and employer to fund Medicare. However, unlike Social Security, there is no cap on income for the Medicare portion. All W-2 income, regardless of the amount, is subject to the Medicare tax.In 2012, the employee portion of the Social Security tax was reduced to 4.2%. The employer portion remained unchanged. This was aone-year reduction and will have no impact on the amount of Social Security benefits the employee will receive in retirement.[Also, as part of the health care reform legislation passed in 2010, individuals and couples with incomes exceeding certain thresholds will be subject to an additional 0.9% Medicare tax, which will be paid by the employee.]Source: 2012
7 Funding and Calculation of Benefits Becoming eligible40 quarters (10 years) of wages that were subject to Social Security payroll taxesQuarters do not need to be consecutiveQuarters do not expire and will remain on Social Security recordBenefits calculated based on average of the 35 highest years of earnings$0 used in all years less than 35Will result in a lower benefitPaying taxes into Social Security does not automatically make a taxpayer eligible to receive benefits. To be eligible to receive Social Security benefits, a taxpayer must work and pay Social Security taxes for 40 quarters. The quarters do not need to be consecutive nor do they expire. Once a taxpayer has worked and paid Social Security taxes for the 40 quarters, the taxpayer is eligible to receive benefits.[CLICK]How much the benefit will be is determined by the taxpayer’s work history. Benefits are calculated by averaging the 35 highest years of income. If a taxpayer does not have 35 years of earnings history, those years will count as $0 in the calculation. As a result, this will lower the benefits the taxpayer will receive as it will have the effect of lowering the average.Source: SSA Publication No , ICN , February 2012
8 Health of the System Facts & Figures $2.7 Trillion Trust Fund $736 Billion in Benefits Paid in 2011$805 Billion Added to Trust Fund in 2011By 2033 Trust Fund will be Depleted75% of benefits to be paid at that point[Read Slide]There has been a great deal of discussion about the health of the Social Security system and potential ways to strengthen the system. Based on the current estimates, the Social Security Trust Fund will be exhausted in This means full benefits will no longer be made.Source: as of October 2012
9 Potential Future Changes? Increase Social Security Payroll Taxes by a total of 1%Increase to 6.7% for employees / 6.7% for employersExtends life of Social Security Trust Fund to 2056Increase Social Security Payroll Taxes by a total of 2%Increase to 7.2% for employees / 7.2% for employersExtends life of Social Security Trust Fund to 2083[Read slide. Click second paragraph.] Let’s look at a few of the potential changes to the Social Security system and see how these changes would strengthen the Trust Fund.Source: Congress of the United States Congressional Budget Office: Social Security Policy Options, July 2010
10 Potential Future Changes? Uncap Earnings Limits on Social Security Payroll TaxesApply to both employer and employeeExtends life of Social Security Trust Fund to 2083Raise Full Retirement AgeIncrease to 68 for those born after 1966Does not extend life of Social Security Trust Fund significantlyIncrease to 70 for those born after 1978[Read Slide. Click in second paragraph]Here are some other ideas. Note that raising the full retirement, while it is often discussed, may not have a significant impact on the Social Security Trust Fund.Source: Congress of the United States Congressional Budget Office: Social Security Policy Options, July 2010
11 Social Security Maximization Strategies Now that we have discussed the health and future of Social Security, let’s move on to some Social Security maximization strategies.
12 Social Security Maximization Strategy In 2011, 74% of Social Security beneficiaries received reduced paymentsWhy Do Clients File Early?“Bird in hand”Don’t trust the governmentAnticipate shorter lifespanTake and investMany Americans file early for Social Security. In % of those receiving benefits received a reduced benefit because they had begun receiving payments before their full retirement age. [CLICK]Clients often do not realize that by filing early they may significantly reduce the amount of Social Security they will receive over their lifetimes. One way to increase Social Security payments is to wait until full retirement, or after, to begin benefits.Source: as of October 2012
13 When To Commence Benefits? Full Retirement Age (FRA)Early RetirementDelayed Retirement Credits (DRC)Up toAs low as[OPTIONAL SLIDE] As you can see from the graph on this slide, there are choices individuals can make in terms of when to take Social Security benefits. At full retirement age (FRA), they will receive full Social Security benefits. What happens, though, if they decide to take benefits prior to, or after, full retirement age? [CLICK in ER][CLICK in DR]Source: as of October 2012
14 Taking Benefits and Working Retirement Earnings TestUnder Full Retirement Age (FRA)Give up $1 in benefits for every $2 earned above a $15,120 limitIn the Year Full Retirement Age (FRA) is reachedGive up $1 in benefits for every $3 earned above a $40,080 limitFull Retirement Age (FRA)No penalty[OPTIONAL SLIDE]Besides age, there are other factors to consider when determining at what age to begin Social Security payments. Depending on your client’s age, if they are still working and collecting Social Security benefits, their benefits could be reduced.Source: as of October 2012
15 Social Security Maximization Strategy Breakeven Points:Age 70 vs. 66: Age 81Age 66 vs. 62: Age 76Age 70 vs. 62: Age 79When should your client take Social Security? Let’s look at some examples of breakeven points based on the age they decide to take their Social Security benefits.None of us know for sure how long we’ll actually live, but let’s make some assumptions for the purposes of our examples.For those that expect to live to or beyond their life expectancy, it may make sense to delay taking Social Security benefits. Let’s assume there will be a 3% cost-of-living adjustment every year:take distributions at age 62, (assuming a payment of $1500), the total Social Security benefit at age 95 is $1,039,143take distributions at age 66 (assuming a payment of $2000), the total Social Security benefit at age 95 is $1,285,117take distributions at age 70 (assuming a payment of $2640), the total Social Security benefit at age 95 is $1,531,112Even if you don’t live to 95 it may make sense to delay benefits. If you delay taking distributions until:[CLICK]66 instead of 62, and they live past age 76, they will receive more Social Security benefits.[CLICK]70 instead of 62, and they live past age 79, they will receive more Social Security benefits.[CLICK]70 Instead of 66 and live past age 81, they will receive more Social Security benefits.The longer they live past those “breakeven points,” the more benefits they will receive.This is a hypothetical example for illustrative purposes only. This assumes a full retirement age benefit of $24,000 a year, an annual cost of living adjustment of 3%, and the client living to age 95.
16 Social Security Maximization Strategy One of the challenges that married couples need to deal with is longevity. For instance, a 65 year-old married couple has a 50% chance that one spouse will live to age 92. That’s almost 30 years. As you have the Social Security conversation with your clients, it is important to remind them of longevity, and demonstrate how taking benefits early can affect the amount of Social Security they receive overall.*Source: U.S. Annuity 2000 Mortality table, Society of Actuaries
17 Spousal BenefitsMarried individuals can claim Social Security benefits based onPersonal earnings record, orSpouse’s earnings recordIf electing based on spouse’s earnings recordSpousal benefit is up to 50% of their spouse’s Social Security benefitCannot claim spousal benefit until the spouse files for benefits[OPTIONAL SLIDE] It should be noted that it is possible to receive benefits even if the taxpayer never worked or did not have enough credits to be eligible for benefits. Taxpayers who are married can receive Social Security benefits based on their spouse’s earnings history. If a married taxpayer has met the 40 quarter requirement, the taxpayer can elect to receive benefits based on the taxpayer’s personal earnings record or the taxpayer’s spousal benefits.[CLICK]If benefits are based on the spouse’s earnings history, the spousal benefit is up to 50% of the working spouse’s Social Security benefit. However, the taxpayer cannot claim spousal benefits until the working spouse files for benefits.Source: as of October 2012
18 Survivor BenefitsSurviving spouse can receive or step up to the benefit of the deceased spouseIf survivor is full retirement age, 100% of spouse’s benefitSurvivor benefits generally begin at age 60Survivor benefits reduced if received before full retirement age – up to 28.5%Exceptions for widowers with children who are under 19Survivor can switch to his or her own benefitsAdvantageous if greater when full retirement age reached[OPTIONAL SLIDE] Another way a spouse can receive Social Security benefits is when his/her spouse passes away. This type of benefit is known as survivor benefits. If the surviving spouse is at full retirement age, the benefit will step up to 100% of the deceased spouse’s benefit.Survivor benefits can start as early as age 60, but if they begin this early the benefit will be reduced.It is important to remember that a spouse can collect survivor benefits, and at some later point switch over to his/her own benefits. In other words, collecting survivor benefits will not have an effect on your own benefits.Source: as of October 2012
19 Social Security Maximization Strategy Age62Jen and Matt are married and both 62 years old66Matt’s full monthly Social Security benefit at age 66 will be $2,00085Matt dies at age 8592Jen dies at age 92Let’s look at an example involving Matt and Jen. This couple is considering different options for beginning their Social Security benefits.[Read Slide.]What are their options?Jen stayed home and raised the family, so she has no earned Social Security benefits of her ownThis is a hypothetical example for illustrative purposes only.
20 Social Security Maximization Strategies Option 1: File Early At Age 62Matt files, lives 23 yearsReduced benefit of $1,500 month / $18,000 year for 23 yearsJen files, lives 30 yearsOption number one is for Matt and Jen to both begin benefits at age 62.Since Jen does not have a Social Security record of her own, she will need Matt to file for benefits to enable her to become eligible for spousal benefits. The first option is to have Matt file for his Social Security benefit today. When he does this, Jen will become eligible to begin her spousal benefits. Since she is below her full retirement age, instead of 50% of Matt’s benefit, she will receive 35% of Matt’s benefit. Since Matt is also below full retirement age, his benefit will have a 25% reduction – so instead of the $2,000 per month he is entitled to at age 66, he will receive $1,500 per month.Assuming that Matt lives until age 85 and Jen lives until age 92, Matt will receive his $18,000 per year payment for the next 23 years. Note that this figure could increase for Social Security Cost of Living Adjustments (COLA).Jen will receive her own spousal benefit for the next 23 years until Matt dies. At that point, her benefit will increase to Matt’s benefit. So instead of $700 per month, once he has passed away her new survivor benefit will be $1,500 per month. Note that figure could be larger if there are COLAs.Reduced spousal benefit of $700 month / $8,400 year for 23 yearsSurvivor benefit of $1,500 month / $18,000 year for 7 yearsThis is a hypothetical example for illustrative purposes only.
21 Social Security Maximization Strategies Option 2: File At Full Retirement AgeMatt files at 66, lives 19 yearsReceives $2,000 per month / $24,000 per yearJen files at 66, lives 26 yearsOption #2 is for Matt and Jen to both file at age 66.[Read slide]Receives $1,000 per month / $12,000 per year for 19 yearsSurvivor benefits of $2,000 month / $24,000 year for 7 yearsThis is a hypothetical example for illustrative purposes only.
22 Social Security Maximization Strategies Option 3: Matt Files & SuspendsMatt files at 66, lives 19 years, suspends benefits until age 70At age 70, receives $2,640 per month / $31,680 per yearJen files at 66, lives 26 yearsAnother option is for Matt to file at age 66, but then immediately suspend his benefits. By doing this he will not begin receiving his Social Security benefits yet, but Jen can begin to receive her spousal benefits. At age 70, Matt will begin his Social Security benefits.[Read Slide]Receives $1,000 per month / $12,000 per year for 19 yearsSurvivor benefits of $2,640 month / $31,680 year for 7 yearsThis is a hypothetical example for illustrative purposes only.
23 Social Security Maximization Strategies Matt and Jen Claim at 62$414,000 of his benefits$193,200 of spousal benefits$126,000 of survivor benefitsTotal Payout: $733,200Matt and Jen Claim at 66$456,000 of his benefits$228,000 of spousal benefits$168,000 of survivor benefitsTotal Payout: $852,000Matt Files & Suspends at 66$475,200 of his benefits$228,000 of spousal benefits$221,760 of survivor benefitsTotal Payout: $924,960Here are the total payout amounts for each of the different scenarios for Matt and Jen. Remember, this is all the same client and they could have chosen any of the options. The file and suspend strategy results in the largest dollar amount for both Matt and Jen.[CLICK in paragraph two][CLICK in paragraph three]This is a hypothetical example for illustrative purposes only.
24 File and SuspendIncreases benefits for couples who retire at different agesThings to rememberMarried couples are eligible for benefits based on their earnings history or their spouse’s earnings historyClients cannot collect on your spouse’s earnings history until your spouse files for benefitsClients can file for benefits and immediately suspend receiving those benefitsSpouse who suspends the benefits continues to receive delayed retirement credits (DRC)“Suspending” spouse must have reached full retirement ageLet’s review some important information about the File and Suspend strategy. It allows married couples who retire at different times to increase benefits. This approach works really well where one spouse has either no personal earnings history (i.e., homemaker) or a very limited earnings history. To understand the approach, it is important to remember a couple of things.[Read Slide or use below talking points]First, married couples are eligible to receive benefits based on their personal earnings history or their spouse’s earnings history.Second, individuals cannot collect spousal benefits until their spouse files for benefits.Third, just because an individual files for benefits does not mean that the individual must receive those benefits.Fourth, if the spouse who files for benefits elects to suspend those benefits, the spouse will benefit from receiving DRC on the spouse’s personal benefits.And finally, and an important rule that must not be overlooked, the spouse who is filing for benefits and suspending those benefits must have reached FRA for this strategy to work.This is a hypothetical example for illustrative purposes only.
25 Social Security Maximization Strategy Age6266708592Adam is looking to retire at age 70, his Social Security benefit will be $2,640 per monthAdam dies at age 85Meghan dies at age 92Adam and Meghan are married and both 66 years oldMeghan’s full monthly Social Security benefit at age 66 will be $1,500 per monthLet’s look at an example involving a Adam and Meghan. This couple is considering different options for beginning their Social Security benefits. [Read Slide.] What are their options?[Click, Click, Click]This is a hypothetical example for illustrative purposes only.
26 Social Security Maximization Strategy Option 1: Meghan files and Adam waitsMeghan files for benefits at age 66She receives $1,500 per month / $18,000 per year for 19 yearsSurvivor benefits of $2,640 month / $31,680 per year for 7 yearsAdam files in four years at age 70Adam receives $2,640 per month / $31,680 per year for 15 yearsThe first option is for Meghan to file for Social Security this year. Adam is looking to take advantage of the deferred retirement credits, so he will not begin his benefits until age 70.This is a hypothetical example for illustrative purposes only.
27 Social Security Maximization Strategy Option 2: Adam files a Restricted ApplicationMeghan files at 66, her benefits are unaffectedEntitled to 50% of Meghan’s benefitIn the first four years he receives $750 per month / $9,000 per yearAt age 70, he switches to his own benefitOver the next 15 years, he receives $2,640 per month / $31,680 per yearAt age 66, Adam files a Restricted ApplicationThe second option is for Meghan to file for her benefits at age 66, the full retirement age for both her and Adam. By doing this, Adam is able to file for spousal benefits only – allowing him to receive 50% of Meghan’s benefit. This strategy does not affect his own benefit from increasing by 8% per year. When Adam reaches age 70, he will then switch to his own benefit.This is a hypothetical example for illustrative purposes only.
28 Social Security Maximization Strategies Meghan Files At 66 / Adam Files At 70$475,200 of his benefits$342,000 of her benefits$221,760 of survivor benefitsTotal Payout: $1,038,960Adam Uses Restricted Application$36,000 of spousal benefits$475,200 of his benefits$342,000 of her benefits$221,760 of survivor benefitsTotal Payout: $1,074,960By using the restricted application strategy, from ages Adam is able to collect a total of $36,000 in benefits that he otherwise would not have been able to. [CLICK in paragraph 2]This is a hypothetical example for illustrative purposes only.
29 Restricted Application Increases benefits for couples with their own earnings history who may be retiring at different agesThings to remember:Individuals can collect spousal benefits and allow their personal earnings history benefits to receive delayed retirement creditsIndividuals cannot collect benefits on their spouse’s earnings history until their spouse files for benefitsIndividuals cannot file a restricted application until they have reached full retirement ageHere are some important factors with this strategy. Like File and Suspend, this strategy increases the spousal benefit component of Social Security. However, in this case, this strategy can be used to increase benefits for married couples who have their own personal earnings history and would normally file for benefits using that history. Or put another way, the individual personal earnings history benefits are larger than the spousal benefits so it would normally not make sense to apply for spousal benefits. The big difference in this strategy is that we are assuming that spouses wish to retire at different ages, either due to an age spread or career choice.The important thing to remember is that an individual can collect spousal benefits at FRA and allow the individual’s personal earnings history benefit to collect DRC. Also, remember that we have been mentioning that an individual cannot collect spousal benefits until the spouse files for benefits.This is a hypothetical example for illustrative purposes only.
30 Social Security Cash Flow For our last topic today, let’s discuss Social Security cash flow.
31 Calculating Social Security Cash Flow What is Net Cash Flow?Social Security Cash Flow ReductionsTaxesMedicare PremiumsWhen discussing Social Security benefits with your clients, remind them that their benefits may be lower than expected because of taxes as well as deductions for Medicare premiums.
32 Taxation of Social Security Benefits Benefits may be taxable depending on the amount of client’s provisional incomeProvisional Income includes:½ Social Security benefitsIncome from municipal bondsWagesBusiness incomeInterestCapital gainsDividendsTraditional IRA distributionsRental incomeAnd more…Provisional Income does not include:Tax-deferred build-up inside IRAs, 401(k)s and annuitiesIncome from Roth IRAsNon-taxable income from life insurance[Read slide]Client’s Social Security benefits may be taxable depending on the amount of their provisional income. Provisional income equals ½ of their Social Security benefit plus other income they have received during the year, even tax-free savings bond interest.Once the amount of provisional income has been determined, they can determine how much of their Social Security benefit will be taxable.
33 Taxation of Social Security Benefits Benefits only taxable if provisional income exceeds:Married Filing Jointly$32,000 = SS not taxable$32,000 - $44,000 = up to 50% taxableAbove $44,000 = up to 85% taxableSingle or Head of Household$25,000 = SS not taxable$25,000 - $34,000 = up to 50% taxableAbove $34,000 = up to 85% taxableThese thresholds were put into place (in 1983), with the idea that only wealthy individuals would be paying these taxes.These thresholds are not indexed for inflation and the numbers of middle class people paying these taxes—and the amount that they pay—are only increasing. The thresholds are as follows:Single persons: $25,000Married couples filing a joint return: $32,000Source: as of October 2012Prudential Annuities, its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant.
34 Calculating Social Security Cash Flow Medicare Part B PremiumsIf Your Yearly Income in 2011 wasMonthly Medicare Part B PremiumFile Individual Tax ReturnFile Joint Tax Return$85,000 or less$170,000 or less$104.90above $85,001 up to $107,000above $170,001 up to $214,000$146.90above $107,001 up to $160,000above $214,001 up to $320,000$209.80above $160,001 up to $214,000above $320,001 up to $428,000$272.70above $214,000above $428,000$335.70Many clients never anticipate the impact Medicare premiums will have on the Social Security income they receive. While there are some exceptions for those who have certain disabilities, most Americans will become eligible for Medicare at age 65. There are four parts to Medicare, each providing a different type of coverage.Medicare Part BMedicare Part B covers supplementary services such as doctors’ visits and outpatient expenses. When a client signs up for Medicare, if they are receiving Social Security benefits, their Medicare Part B premium will automatically be deducted from their Social Security payments. In 2013, the smallest monthly premium for Medicare Part B is $ per month, per person if married. This means that past age 65, your client’s Social Security payments could be $1, less per year because of their Medicare Part B premiums. However, Part B premiums can be significantly higher if your client was a high wage earner for the past two years, and/or continues to have high income in retirement.Part D - prescription drug planA supplemental or Medigap policy. A Medigap policy is health insurance sold by private insurance companies and regulated by Medicare. It is designed to pay some of the costs that original Medicare doesn't cover, such as copayments, coinsurance, and yearly deductibles.If your client enrolls in other parts of Medicare, they could also choose to have those premiums automatically deducted from their Social Security payments, further reducing the amount of their net spendable Social Security income.[Click to call out line with $85,000.]as of November 2012
35 Calculating Retirement Cash Flow $999 less net cash flowLet’s take a closer look at the numbers from the File and Suspend example of Matt and Jen. When Matt turns 70 and claims his own Social Security benefit from which taxes and Medicare premiums are deducted, combined with Jen’s benefit less taxes and her Medicare premiums, their combined actual cash flow is over $1,000 less than what their gross Social Security benefit is. However, this strategy provides a higher total net cash flow over both of their life expectancies than would have occurred if they both claimed at age 62. Discussing net cash flow is important because that is the actual dollar amount that a client will live on in retirement.[Click pretax. Click after tax. Click medicare]This is a hypothetical example for illustrative purposes only.
36 Calculating Social Security Cash Flow What will reduce my client’s cash flow in retirement?How much will my clients owe in taxes?Federal / State / LocalWhat pension option did my client choose?Is my client’s pension integrated?Could be reduced when they become eligible for Social SecurityWill a government pension reduce my client’s Social Security?Government Pension Offset / Windfall Elimination ProvisionThere are a number of factors that come into play when talking about net cash flow in retirement. Here are some to discuss with your clients.Social Security benefits are taxableSome public corporation pensions may offer a pension income that is integrated with Social Security if your client begins to receive pension benefits prior to age 62If your clients are covered by a pension and/or received earnings, but didn’t pay Social Security taxes, their Social Security benefit and survivor benefits may be reduced by the Government Pension Offset or Windfall Elimination provision
37 Calculating Social Security Cash Flow What will reduce my client’s cash flow in retirement?How will the cost of Medicare affect my client’s Social Security?Premiums for Part B, D, Supplement, Co-pays and DeductiblesHow will other Healthcare and Long-term Care costs affect cash flow?Have my clients accounted for inflation?Even more factors that come into play when talking about net cash flow in retirement. Here are some to discuss with your clients.Medicare premiums are deducted from your Social Security benefits beginning at age 65If delaying Social Security benefits up to age 70, Medicare premiums are paid out of pocket quarterly until Social Security benefits have commencedRead Slide
38 Retirement Income – Then and Now “Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.”Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*“Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.”As you think about how your clients will use Social Security as part of their retirement income plan, remember what the Social Security Administration says about their own program on their statements:[CLICK][READ] Social Security is the largest source of income for most elderly Americans today, but Social Security was never intended to be your only source of income when you retire. You also will need other savings, investments, pensions or retirement accounts to make sure you have enough money to live comfortably when you retire.[READ] Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits.*As you prepare for retirement you will need multiple sources of retirement income.
39 Retirement Income – Then and Now Pensions are playing a smaller role for Americans as they prepare for retirement. The number of traditional employer pension plans has decreased from a peak of 175,000 in 1983 to just 25,000 today (USAA, “Retirement Income: It’s Up To You Now”, 2012.) As a result of this decline in pension plans, there is a greater emphasis on the need for increased personal savings and investing wisely.What strategies are available to help increase your Social Security benefits?Other than Social Security, what guaranteed income sources do you have?How important is it to have a source of guaranteed income?
40 Generating Supplemental Income Variable Annuities Provide:Control Over Timing of TaxesTax DeferralTax-Free Portfolio RebalancingAccess to Equity MarketsPotential for Guaranteed Lifetime IncomeThat being said, variable annuities offer all of these benefits.
41 Generating Supplemental Income Considerations include:Fees & Charges – May apply and will vary depending on the annuity product chosen and any optional features selected.Access to Money – Generally allows up to 10% of purchase payments without incurring any charges.Withdrawals – Taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may result in an additional 10% federal income tax penalty. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes.Suitability – Investors should consider all aspects of a variable annuity including investment objectives, risks, charges and expenses carefully before investing.In addition, here are some things you should consider when evaluating whether a variable annuity is right for your client. [Speaker: Read slide.]The costs associated with variable annuities vary depending on the annuity product chosen and any optional features selected. Charges are deducted to cover the cost of issuing and maintaining the annuity contract, for insurance guarantees associated with the underlying base death benefit, as well as management expenses of the underlying investment options.In addition, while variable annuities generally allow investors to access up to 10% of their purchase payments each year without incurring any charges, such withdrawals will be subject to ordinary income taxes and, if withdrawn prior to age 59½, may be subject to a 10% federal income tax penalty. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes. Additionally, withdrawals that exceed a specified annual amount may be subject to a withdrawal charge. Withdrawal charges are assessed for a specific period of time and generally reduce each year. A complete explanation of charges and additional costs is provided in the annuity’s prospectus. Please read it carefully before investing. Please note that all guarantees are based on the claims-paying ability of the issuing company.
42 Follow a Three-Step Plan Schedule ConversationsReview Social Security Benefits and OptionsAsk Three QuestionsWhat strategies do you have to increase your Social Security benefits?Other than Social Security, what guaranteed income sources do you have?How important is it to have a source of guaranteed income?Now that we have covered some of the advanced planning techniques of Social Security, it is important to put this information into practice. To start the process, follow this three-step plan.Step one: schedule conversations with your clients. The topic of the conversation will vary depending on the age of your clients and their retirement strategies. But a good rule of thumb is to categorize your clients into three groups: those with five to 10 years to retirement, those who are planning to retire very soon and those already retired.Step two: sit down with your clients and review their Social Security benefits and options. For those five to 10 years to retirement, utilizing the tools from the Social Security Administration is a great way to estimate benefits and options. For those nearing retirement, it is vital to understand options and when to commence benefits. For those already retired, they may have already made irrevocable decisions, but there may be strategies to reduce the taxation of their Social Security benefits.Step three: ask the three questionsQuestion 1: What strategies do you have to increase your Social Security benefits?Question 2: Other than Social Security, what other guaranteed income sources do you have?Question 3: How important is it to have a source of guaranteed income?These three questions will help you develop a retirement strategy that will give your clients the peace of mind they are looking for in retirement.
43 SummarySocial Security is an important part of a retirement income planCertain strategies can increase benefitsHelp clients determine how much retirement cash flow they need[Read Slide.]
44 QuestionsClickThis concludes the CE portion of this presentation. Before we move on, are there any questions you have on the topics we just discussed?
45 DisclosuresInvestors should consider the contract and underlying portfolios' investment objectives, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained by contacting the National Sales Desk. Your clients should read the prospectus carefully before investing. Variable annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.
Your consent to our cookies if you continue to use this website.